An energy boom has hit the rural counties of the upper Ohio River Valley, resulting in a flood of investment in mineral leasing that is revitalizing economies and creating newfound prosperity for many landowners, Keith Schneider reported in the New York Times on June 4.
The swath of east and southeast Ohio is thick with deeply buried oil- and gas-bearing rock. To date, energy companies have spent about $4 billion on leases and more than $3 billion on production and transport sectors in Ohio.
Typically, energy companies negotiate Ohio oil-and-gas leases individually with landowners, many of whom are “unskilled in the back and forth of negotiation,” said Schneider. The contracts are usually just a few pages long.
Recently, however, Jennifer Garrison, an Ohio lawyer and former Democratic state representative, represented a group of 70 households in Noble County, Ohio, in negotiations with Pennsylvania-based Eclipse Resources. In May, Eclipse paid the residents a total of $16 million for leases to the oil and gas reserves located beneath their properties. It was an “unusually lucrative deal” that paid $4,000 an acre and 19 percent royalties on oil-and-gas production, as compared to the standard $20 to $30 per acre and one-sixth percent royalty rates, writes Schneider.
Garrison’s clients negotiate as an association of landowners who control thousands of acres in a leasing block. She also helped a group of 200 households in Sardis, Ohio, who own almost 10,000 acres negotiate a lease with Eclipse that pays them $4,250 per acre for three years plus 20 percent royalties.
Garrison also negotiates for provisions for testing before and after drilling to ensure that chemicals used in the production process have not contaminated local drinking water. “We try to help landowners get what they want in their leases,” Garrison told Schneider. “And they wanted to make sure their water was safe.”
Given that the median household income in the region is $33,000, the six- and seven-figure checks have been disorienting to residents. “It doesn’t seem real,” landowner Sharon Stottsberry told Schneider after she and her husband received $280,000 for an oil-and-gas lease. Much more cash could be on the way.
As we wrote in our article “Can’t Beat Them? Then Join a Coalition” in the March 2009 issue of the Negotiation newsletter, in certain situations, negotiators are unqualified to bargain on their own behalf. Lawyers, agents, and other third parties can provide the expert negotiation guidance needed to prosper in situations as wide-ranging as a divorce settlement, a book sale, or a corporate merger.
A negotiating coalition takes the “Don’t go it alone” strategy a step further. Rather than (or in addition to) hiring one or more advisers to negotiate for you, a number of weak parties who might otherwise be in competition with one another join forces to negotiate in a collective, organized manner with one or more stronger parties.
Coalitions bring several benefits to weak parties. First, when weak parties join a coalition, they avoid destructive competition with one another and, by pooling their resources, gain strength in negotiations with stronger parties. In addition, a coalition defuses a common adversary’s ability to pit one weak party against another or to credibly threaten to walk away.
Coalitions can bring advantages to the party across the table as well. The chance to negotiate with one party rather than many is likely to save time and lower negotiating costs. In sum, a coalition is likely to lead to a more efficient negotiation process that could benefit everyone involved, including consumers and other constituents who may be affected by the outcome.